SAN FRANCISCO — Micro soft and Yahoo, after years of awkward dancing, have struck a long-awaited Internet-search pact that will enable them to compete more aggressively with market leader Google.
The 10-year deal puts an end to 18 months of frenzied speculation about how a pact between the companies — seen as inevitable by many shareholders — might be framed, and it narrows the Internet-search field down to two significant players.
Under the agreement’s terms, Microsoft will not provide Yahoo with an upfront payment but will compensate Yahoo through a revenue- sharing agreement on traffic generated on Yahoo’s network of owned and operated sites as well as its affiliate sites.
The lack of an upfront payment is noteworthy because Yahoo chief executive Carol Bartz previously had said she was looking for “boatloads” of money in any deal with Microsoft and because previous Microsoft offers included significant cash components. On Wednesday, Bartz emphasized the “boatloads of value” that the deal offered.
Still, disappointment over the lack of upfront money appeared to weigh on Yahoo shares. Yahoo fell 12.1 percent to $15.14, while Microsoft added 1.4 percent to $23.80. Google shares fell 0.8 percent to $436.24.
The deal’s terms suggest Yahoo exchanged cash in order to stay involved with selling ads under the partnership.
Doing so allows Yahoo to share in the revenue, and it potentially gives Yahoo control over some advertiser relationships and consumer data.
Each company will maintain a separate advertising business and sales force. Microsoft will pay Yahoo an initial rate of 88 percent of search revenue generated on Yahoo’s owned and operated sites for the first five years of the agreement.
Microsoft’s recently launched Bing search engine will be the algorithmic- search and paid-search platform for Yahoo’s sites.
Yahoo estimated that at full implementation, expected 24 months after regulatory approval, the agreement will add $500 million in operating income, $200 million in capital-expenditure savings and $275 million in operating cash flow.
